Question

ABC company is considering a project that calls for an initial cash outlay of $50,000. The expected net cash inflows from the project are $7,791 for each of 10 years. What is the IRR of the project?

Answer 1

IRR is the rate at which Net presnt value of the project is NIL.

IRR can be found out using trial and error method.

Years	Cash Flows	Dicount Factor @ 10%	Present Value	Discount Factor @ 9%	Present Value
0	-50000	1.000	-50000	1	-50000
1	7791	0.909	7083	0.917	7148
2	7791	0.826	6439	0.842	6558
3	7791	0.751	5853	0.772	6016
4	7791	0.683	5321	0.708	5519
5	7791	0.621	4838	0.650	5064
6	7791	0.564	4398	0.596	4646
7	7791	0.513	3998	0.547	4262
8	7791	0.467	3635	0.502	3910
9	7791	0.424	3304	0.460	3587
10	7791	0.386	3004	0.422	3291
Net Present Value	-2128		0

From the above table, it is clear that NPV is NIL when IRR is very close to 9%. Therefore, IRR of the project is 9%.

answered by: anonymous